- Stocks finish modestly higher as tech lags - Equity markets were mostly higher on Thursday, with the S&P 500 closing at a fresh record high. Yields on 10-year Treasuries were higher to 4.64%, pressuring the tech-heavy Nasdaq some, which is, though, still on track for a solid gain for the week*. Elsewhere, WTI oil declined after President Trump said he would push Saudi Arabia and OPEC to reduce prices. On the economic front, initial jobless claims ticked higher from the prior week, partly impacted by the wildfires in the Los Angeles area. Yet, overall claims remain low, consistent with few layoffs. In the absence of any major releases, next week's mega-cap tech earnings and the Fed rate announcement are the two main catalysts that will likely determine the direction of markets in the near term.
- U.S. growth momentum continues amid headline volatility - Financial markets, and especially currencies, have been reacting to incoming Trump headlines as the new administration starts to lay out its policies for the next four years. Despite threats of tariffs on Canada, Mexico and China, equities have welcomed the fact that Trump has so far held off on imposing tariffs on trade partners in his first few days in office. No doubt, developments on trade will be a source of uncertainty in the months ahead and a potential offset to the excitement about pro-growth positives. However, what is implemented may not be as onerous as feared, and regardless of which trade scenario plays out, the U.S. economic and earnings growth momentum remains strong. Ahead of the advanced estimate released next week, the Atlanta Fed's GDP forecast points to 3% growth in the fourth quarter, suggesting that the U.S. economy grew 2.7% in 2024, well above its 2% long-term potential*. We expect a modest cooling this year but still see solid growth ahead, driven by a resilient consumer and a supportive labor market.
- Tech earnings in focus next week - About 14% of the S&P 500 companies have reported results so far, and the earnings season is off to a good start. Financials have set the tone early on with margin improvement and mentions of consumer strength. Next week investors will be looking to big-tech results, as four of the Magnificent 7 companies will report earnings (Microsoft, Meta, Apple and Amazon). Profits are expected to grow slightly over 20% for the group in the fourth quarter vs. expectations of 12% growth for the S&P 500*. While still outpacing the broader index, the growth gap between mega-cap tech and the rest of the market is narrowing, indicating a healthy broadening in earnings delivery. Artificial intelligence will continue to be a strong driver of performance, but we also see value in areas of the equity market that have been left behind the last two years and have potential to catch up, which is why we recommend investors stay balanced between growth- and value-style investments.
Angelo Kourkafas, CFA
Investment Strategist
Source: *FactSet
Value stocks represented by the Russell 1000 Value Index. Growth stocks represented by the Russell 1000 Growth Index.
- Stocks close higher on strength in mega-cap tech: U.S. equity markets closed higher on Wednesday, with tech shares leading the way. The S&P 500 posted a 0.6% gain, while the Nasdaq rose by 1.3%.* On Tuesday, President Donald Trump announced a joint venture between tech companies Oracle, ChatGPT and SoftBank, which pledged to invest up to $500 billion in AI infrastructure over the next four years.* Shares of Oracle were higher by roughly 7% in response, and technology was the top-performing sector of the S&P 500 by a wide margin.* In other corporate news, media-giant Netflix reported better-than-expected fourth-quarter earnings and record quarterly subscriber growth.* Netflix shares traded higher nearly 10% on the news.* Overseas, Asian markets were mixed overnight, with Japan's Nikkei gaining over 1.5%, while markets in China finished lower in response to comments from President Donald Trump that the U.S. could impose tariffs of 10% on goods imported from China as early as February 1.* On the economic front, the Conference Board's Leading Economic Indicators declined by 0.1% in December, in line with expectations.* Bond yields finished the day higher, with the 10-year U.S. Treasury yield rising to 4.6%.*
- Corporate earnings in the spotlight: With a light economic calendar this week, fourth-quarter earnings have taken the spotlight, and they haven't disappointed. Several large U.S. banks reported strong results last week, while this week's headliner has been media-giant Netflix, which posted better-than-expected profits and subscriber growth.* With about 12% of companies in the S&P 500 having reported thus far, profits are on pace to grow by roughly 12% year-over-year in the fourth quarter, which would put the annual earnings growth rate at roughly 9%.* Of the companies that have reported, 76% have announced better-than-expected earnings with an average upside surprise of nearly 8%.* Strong earnings momentum is expected to continue into 2025, with estimates calling for earnings growth of roughly 15%.* In our view, the economic backdrop should remain supportive for healthy profit growth in 2025. With valuations elevated relative to history, we believe strong earnings growth will be a necessary ingredient in sustaining the current bull market.
- It's early innings, but leadership has been broad so far in 2025: While a few weeks of performance doesn't make a trend, we've seen broadening leadership in the first few weeks of 2025. At a sector level, cyclical sectors of the S&P 500, such as energy, industrials and materials, have been among the top performers, while the technology sector has slightly lagged.* The outperformance in cyclical sectors has surfaced in style performance as well, with value stocks higher by roughly 4.5% year-to-date versus only a 2% gain in growth stocks through yesterday's market close.* Value stocks have seen lackluster profit growth compared with growth stocks over the past two years and have underperformed as a result. Profits are expected to grow by over 12% in both growth- and value-style stocks in 2025.* In our view, this should lead to more balanced performance between growth- and value-style stocks over the coming months, strengthening the case for portfolio diversification.
Brock Weimer, CFA
Investment Strategy
Source: *FactSet
Value stocks represented by the Russell 1000 Value Index. Growth stocks represented by the Russell 1000 Growth Index.
- Stocks close higher: After the S&P 500 gained nearly 3% last week, momentum followed through on Tuesday, with U.S. equity markets closing higher. It was a quiet day from an economic perspective; however, stocks reacted favorably to what for now appears to be a more measured rollout of trade policy from the Trump administration. The S&P 500 gained 0.9%, logging its fifth daily gain out of the last six trading sessions. Leadership was broad-based, with most sectors of the S&P 500 closing higher, led by the industrials and real estate sectors.* Small-cap stocks outperformed today as well, with the Russell 2000 gaining over 1.5%, reflecting a risk-on tone in equity markets.* Overseas, Asian markets were mostly higher overnight, while European markets closed higher as well. In currency markets, the DXY U.S. Dollar Index was lower by more than 1% in response to the news that President Donald Trump will not impose across-the-board tariffs immediately. However, he did mention potentially implementing tariffs on Canada and Mexico as soon as February 1, citing concerns over border security. Bond yields closed lower, with the 10-year Treasury yield falling to the 4.56% mark, down from its recent peak of about 4.8% early last week.*
- Earnings in focus: Corporate earnings will remain in focus this week with over 30 companies in the S&P 500 scheduled to report, headlined by media-giant Netflix, which will report after the market close today.* Several large U.S. banks kicked off fourth-quarter earnings season last week, with results broadly positive. Charles Schwab continued the trend of strong earnings results in financial services companies by exceeding fourth-quarter earnings estimates by roughly 10% this morning.* With roughly 10% of companies in the S&P 500 having reported earnings thus far, earnings are on pace to grow by roughly 11% annually in the fourth quarter.* If achieved, S&P 500 earnings would post a roughly 9% gain in 2024, which would be the highest since 2021.* Encouragingly, the earnings momentum is expected to continue into 2025, with current estimates calling for roughly 15% profit growth.* Earnings growth is expected to be positive across all 11 sectors of the S&P 500, with technology, health care and industrials expected to see the strongest profit growth.* In our view, broad-based earnings growth across growth- and value-style sectors should support a broadening of leadership in 2025. As part of our opportunistic portfolio guidance, we recommend investors maintain a neutral exposure between growth- and value-style stocks.
- Bond yields retreat from recent highs: Since the Fed delivered its first rate cut this cycle on September 18, the 10-year U.S. Treasury yield has risen by roughly 0.9%.* The move higher in bond yields has been driven by a combination of factors, with higher expectations for inflation, robust economic growth, and fiscal policy uncertainty all likely playing a role. Last week, encouraging inflation data offered bond yields some reprieve, with the 10-year Treasury yield falling roughly 0.2 percentage points from it's high of around 4.8% earlier in the month. Core consumer price index (CPI) inflation rose by 0.2% in December, the lowest monthly gain since July.* In our view, the trend in inflation remains lower; however, there will likely be bumps along the way. This should allow the Fed to continue easing monetary policy, even if it's at a slower pace than was previously expected by markets. Under this environment, we see limited scope for yields to rise meaningfully from current levels. We recommend investors reduce overweight allocations to cash-like investments and reposition to intermediate- and longer-term investment-grade bonds as appropriate with their financial goals.
Brock Weimer, CFA
Investment Strategy
Source: *FactSet
- Nasdaq leads stocks higher – Equity markets rose on Friday, as the S&P 500 posted its largest weekly gain since the election*. Sector performance was broad, as consumer discretionary and technology stocks led to the upside, reflecting a risk-on tone. Bond yields ticked up, with the 10-year Treasury yield at 4.61%. In global markets, Asia was mixed, as China's fourth-quarter GDP growth beat estimates but U.S. tariff concerns affected the outlook. Europe closed higher, led by materials and auto stocks. The U.S. dollar resumed its advance versus major currencies. In the commodity space, WTI oil and gold traded lower.
- Corporate earnings season off to a solid start – Fourth-quarter earnings season kicked off this week, with the largest banks leading the way. Of companies that reported, 77% beat analyst estimates, with an average upside surprise of 9.3%*. Earnings growth is expected to be broad, with seven of the 11 sectors forecast to report higher earnings year-over-year*. The sectors forecast to have lower earnings – consumer staples, energy, industrials and materials – represent about 19% of the market capitalization of the S&P 500*. Broadening earnings growth has contributed to a rotation in market leadership. Over the past six months, the consumer discretionary, financials, utilities and industrials sectors have each outperformed the technology sector*. We expect market leadership to continue to widen beyond technology stocks as investors look toward investments with more domestic exposure and potential for earnings growth and valuation expansion, strengthening the case for portfolio diversification.
- Housing starts rise more than expected – Privately owned housing starts in December rose to a seasonally adjusted annual rate of 1.5 million**, above estimates of about 1.3 million*. Building permits were issued at an annual pace of about 1.5 million, also exceeding forecasts*. These readings reflect confidence among homebuilders, despite persistently high mortgage rates*. These trends should help bring down shelter price inflation as housing supply and demand come into better balance over time, in our view.
Brian Therien, CFA
Investment Strategy
Source: *FactSet **U.S. Census Bureau
- Stocks finish modestly lower following retail-sales data: U.S. equity markets closed modestly lower Thursday following retail-sales data for December. Headline retail sales rose by 0.4% for the month, while control-group sales posted a healthy 0.7% gain, signaling ongoing momentum in consumer spending. On the corporate front, fourth-quarter earnings from U.S. financial services companies continue to exceed expectations, with Bank of America and Morgan Stanley reporting better-than-expected fourth-quarter profits.* This follows strong results from JPMorgan, Goldman Sachs, Citigroup and Wells Fargo yesterday.* The positive earnings news has driven the financials sector of the S&P 500 higher by over 5% this week and has helped support broader risk-on sentiment in equity markets. The S&P 500 and Dow finished lower on Thursday by 0.2%, while the tech-heavy Nasdaq shed roughly 0.9%.* Mid-cap stocks outperformed, with the Russell Mid-cap Index gaining close to 1%, reflecting optimism around U.S. economic conditions following today's retail-sales report. Bond yields finished the day lower, with the 10-year Treasury yield closing around 4.62%.*
- Consumer-spending trends remain healthy: Retail-sales data for December showed that U.S. consumer-spending trends finished the year strong in 2024. Headline retail sales rose by 0.4% in December, slightly below expectations for a 0.5% gain; however, the November reading was upwardly revised from 0.7% to 0.8%.* Looking into the drivers for December, spending at furniture and home stores, along with sporting goods stores, was strong, each rising by more than 2% and reflecting an appetite for discretionary purchases from consumers. Control-group sales, which excludes spending on more volatile categories, such as auto dealers, gas stations, building materials, office supplies and tobacco stores, rose by 0.7%, above expectations for a 0.4% gain.* Consumer spending has been strong in recent quarters and has been the primary driver behind resilient U.S. economic growth over the past two years. We believe strong household balance sheets, moderating inflation, and healthy labor-market conditions will provide ongoing support to consumer spending in 2025, helping extend the economic expansion.
- Choppy start to the year, but the overall backdrop remains supportive: It's been a volatile start to 2025, with the S&P 500 logging four days of moves greater than 1% (two up and two down) in the first nine trading days of the year.* Despite the turbulent start, the S&P 500 is up about 1% year-to-date, with most sectors of the index seeing positive returns. While there will likely be more bumps along the way, we believe the backdrop is supportive for an ongoing expansion in the current bull market. Fourth-quarter corporate earnings are off to a strong start, with several of the largest U.S. banks reporting better-than-expected profits.* Analysts expect the recent earnings momentum to continue into 2025, with S&P 500 earnings expected to grow by about 14% for the year.* Additionally, labor-market conditions remain healthy, and we expect inflation will continue to moderate in 2025, supporting household real incomes and consumer spending. The Atlanta Fed's GDPNow forecast is pointing to fourth-quarter real GDP growth of 2.7%, while the ISM manufacturing PMI rose to its highest since March last month.* While we expect volatility along the way, we believe these conditions point to an ongoing economic expansion and create a supportive backdrop for U.S. equity markets in 2025.
Brock Weimer, CFA
Investment Strategy
Source: *FactSet